Accountancy Part AAdmission of a Partner

The need for valuation of goodwill arises at the time of: (A) Change…

The need for valuation of goodwill arises at the time of:

(A) Change of profit sharing ratio
(B) Retirement of Partner
(C) Admission of New Partner
(D) Death of a Partner
(E) Dissolution of Firm

Choose the correct answer from the options given below :

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → (A), (B), (C) and (D) only

Goodwill has to be valued whenever the partners’ shares in future profits change or a partner leaves, because the partner who gives up a share must be paid for it.

(A) Change of profit sharing ratio — True.
(B) Retirement of Partner — True.
(C) Admission of New Partner — True.
(D) Death of a Partner — True.
(E) Dissolution of Firm — False. On an ordinary dissolution the assets are realised and the accounts closed; the book needs goodwill valued only when the business is sold as a going concern.

NCERT (2026-27 edition):
Need for Valuation of Goodwill – “Normally, the need for valuation of goodwill arises at the time of sale of a business. But, in the context of a partnership firm it may also arise in the following circumstances: 1. Change in the profit sharing ratio amongst the existing partners; 2. Admission of new partner; 3. Retirement of a partner; 4. Death of a partner; and 5. Dissolution of a firm involving sale of business as a going concern. 6. Amalgamation of partnership firms.”